Communication from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions - 'The competitiveness of the European Information and Communication Technologies (ICT) Industries'
Date: 1997-04-16
Institutions: European Commission
Subjects: action programme, competitiveness, information technology, international competition, market

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  16.04.1997 
COM(97)  152  final 

COMMUNICATION FROM THE COMMISSION 

TO THE COUNCIL, THE EUROPEAN PARLIAMENT, 
THE ECONOMIC AND  SOCIAL COMMITTEE 
AND THE COMMITTEE OF THE REGIONS 

"The competitiveness of the European Information  and 
Communication Technologies (ICT) Industries" 

TABLE OF CONTENTS 

1. Introduction 

2. The ICT Industries: global structures, European  competitiveness 

2.1. Market structure 

2.2. Competitiveness  of the European  ICT industries 

3. Main challenges for the European  ICT industries 

Improve market take-up 
Transform industrial structures 
Develop fast-growing companies 
Enable European excellence in software 
Optimise technology development and diffusion 
Exploit the potential for employment growth 

4. Priority areas for policy  initiatives 

4.1. Policy initiatives under way which  require urgent implementation 

4.2. New areas requiring attention 

Improve global competition 
Accelerate ICT take-up and promote awareness 
Create new markets by timely standards 
Exploit the potential of enlargement 
Promote industrial cooperation 
Facilitate the emergence ofSMEs 
Focus on employment: skills, education and training 
Promote benchmarking 

5. Conclusion 

Annex  1 - The Council Resolution of 18.11.1991 and its follow-up 
Annex 2 - Statistical Tables 

/A 

1.  Introduction 

The  Information  and  Communications  Technologies  (ICT)  Industries  (fig.l)  are  a  critical 
component of the European  economy, they are: 
•  a major  and growing part  of industrial  activity 
•  one  of  the  keys  to  future  competitiveness  of  all  industrial  processes,  products  and 

services 
the platform  for the emerging  Information  Society  in the 21st  century 

• 

It is essential  that Europe possess a competitive dynamic  ICT industry  in order to: 
•  avoid excessive  dependence  on key  technologies 
•  participate  in expanding  global  markets 
•  contribute to the creation  of new  employment 
•  be at the forefront  of future  innovation 

Europe cannot  afford  to miss the boat. There are worrying  signs  of: 
•  slow market  growth 
•  declining  relative  shares for  European  producers 
•  uneven response to market  and technological  evolution 

Urgent  action  is  required  by  all  actors  (Industry,  Member  States,  Commission)  to  force 
the  pace  and  ensure  that  European  ICT  industries  are  at  the  forefront  of  market  and 
technological  evolution.  Many  are  already  under  way,  and  now  need  effective  and  urgent 
implementation.  Others  need  to be  developed. 

The Netherlands  Government  and  the recent  informal  Industry  Council  have  launched  the 
debate.  This  Communication  is  a  first  contribution  from  the  Commission,  updating  the 
analysis  and  identifying  the  main  challenges  and  areas  for  attention.  A  tripartite  exercise 
should  be  pursued  over  the  coming  months  to  carry  the  work  forward  towards  priority 
setting and  implementation. 

For  the  purpose  of  this  communication,  ICT  industries  are  defined  as  comprising: 
consumer  electronics,  computer  and  office  equipment,  telecommunication  equipment, 
components,  software  (either  as  component  or  product,  or  services  associated  to  the 
provision  of  software).  Other  sectors,  such  as  broadcasting  or  content  industries,  often 
included  in the definition  of ICT industries, are not covered  here. 

2, The  ICT  Industries: global  structures, European  competitiveness 

2.1.  Market  structure 

Over  the past  5-10 years  technological,  economic  and  social  progress has transformed  the 
industries  and  their  markets  (often  referred  to  as  "convergence").  There  are  three  main 
segments  to  the  market:  infrastructure,  commercial  and  consumer.  The different  features 
of  these  markets  impose  different  structures  and  modes  of  operation  on  the  enterprises 
supplying  them  (fig.  1),  and  imply  different  legislative  and  policy  interests  for  public 
authorities. 

comprising 

large-scale  systems  with 

Infrastructure, 
life-cycles  and 
relatively  slow  growth,  are  being  affected  by  downsizing  and  deregulation.  Although 
traditional  European-affiliated  suppliers  enjoy  strong  competitive  positions  In some  areas 
such  as  telecommunications,  they  are  under  extreme  pressure  to  adapt  themselves  to  the 
progressive  liberalisation  and  deregulation  oftheir  sectors. 

long  product 

•  b 

Industrial  and  commercial  markets  attract  numerous  new  entrants  addressing  niche 
markets  which  in  many  cases  have  grown  to  very  large  segments.  Producers  tend  to  be 
technology  oriented  and  depend  heavily  on  venture  capital  in  their  early  phases.  US 
industry  generally  enjoys  very strong positions  in these  markets. 

Consumer  markets  demand  constant  innovation  and  product  reliability,  and  suffer 
constant  price  erosion.  Consumer  products  are  increasingly  the  technology  drivers  of  the 
ICT  industries.  These  features  have  driven  industrial  concentration  to  the  point  where 
global  markets  are  dominated  by  a  small  number  of  recognised  brand-names  supported 
by  complex  dynamic  global  production  structures.  Japanese,  and  more  recently  Korean, 
producers  are  prominent,  though  European-affiliated  producers  maintain  significant 
presence.  US  producers  are  gaining  importance  as  PC-related  products  expand  into 
consumer  markets. 

The  growing  globalisation 
of  these  markets  has  driven  industry  to  spread  out  its 
manufacturing  operations  seeking  the  most  cost-effective  structures  and  resulting  in  a 
truly  global  network.  The  relative  absence  of  trade  barriers  and  the  universal  nature  of 
market  demand  for  ICT  products  is,  of  course,  the  underlying  factor  in  providing  the 
volume  necessary  to obtain  the economies  of scale  which  drive  this evolution.  In  Europe, 
as elsewhere, a large proportion  of manufacturing  activity  is carried  out  by  transnationals 
with US, Japanese  or Korean  capital  affiliation. 

The  employment  situation  in  the  ICT  industries  is  the  result  of  two  opposing  trends  (see 
Fig.  2): on one  hand  the  effect  of  high  productivity  gains  in  manufacturing  methods  and 
in  some  cases  relocation,  have  resulted  in  substantial  reductions  in  sectors  such  as 
consumer  electronics,  computers  and  terminals.  On  the  other  hand,  the  spectacular 
growth  in  software  and  services  has  increased  employment.  The  net  result  is  a  balanced 
situation  of  overall  moderate  growth  in  the  long  term,  which  however  require  important 
from 
changes  in  the  skills  structure.  Over  the  past  ten  years,  jobs  have  moved 
manufacturing  to  R&D  and  sales/marketing,  as  well  as  from  blue  collar  and  clerical 
workers  to white  collar. 

2.2. Competitiveness  of the European  ICT  industries 

The  ICT  industries  represent  an  important  and  growing  proportion  of  manufacturing 
industry  in  Europe  (see  Fig.  3.1):  8.3%  of  turnover  (up  from  4.3%  in  1981),  6.5%  of 
employment,  7.8%  of  production,  9.1%  of  total  gross  value  added  (up  from  6.1%  in 
1991).  On  all  these  measures  except  employment,  the  ICT  industries  provide  higher 
contribution  than  either  the  chemical  or  the  automotive  industries  (see  Fig.  3.2).  Their 
relative  share  will  increase  in  the  future  as  the  Information  Society  in  all  its  forms  takes 
hold.  These  figures  do not take account  of services  industries  (including  software)  which, 
for  ICT,  show  significant  employment  growth.  Market  growth  rates  are  of  the  order  of 
7%,  and  are  expected  to  continue  at  this  rate  over  the  next  few  years  (see  Fig.  4).This  is 
an  impressive  figure,  considering  that  unit  prices  are  in  general  decreasing  -  even 
drastically 
for  some  products  -  and  each  new  generation  of  products  provides 
significantly  increased  performance. 

Despite  this positive  macro picture, there are causes  for  serious  concern. 

High  as  they  seem,  these  growth  rates  are  consistently  lower  than  those  of  the  USA  and 
the  growing  Asian  economies.  Of  particular  concern  is  the  fact  that  since  1990  Europe's 

Employment  in the  ICT sector  - Study  by  B1PE for  the  European  Commission  -  DG  III  - July  1996 

share  of  world-wide  IT  markets  has  declined  from  35% to  28% (see  Fig.  5).  During  the 
same  period,  US  IT  markets  have  grown  from  a  similar  starting  point  to  represent  about 
4 1%  of  the  world-wide  market  in  1996.  IT  expenditure  in  Europe  represents  4.5%  of 
GDP,  compared  with  5.7%  in  the  USA.  The per  capita  IT  expenditure  is  797  ECU  in 
Europe,  compared  to  1,285  ECU  in  the  USA  (see  Fig.  6).  Within  the  Union,  large 
differences  exist between  Member  States, expenditure  being  generally  lower  in  peripheral 
and  southern  States. 
the  exception  of 
telecommunications  equipment,  is  worsening  in  most  ICT  industry  sectors  (see  Fig. 7). 
Imports  have  increased  five-fold  since  1980  to  143  BEcu  in  1995,  and  now  represent 
circa  50% of consumption  in some areas (office  equipment  and  computers, and  consumer 
electronics)  -  this  is  to  be  compared  with  circa  11  and  17%  in  the  chemical  and 
automotive  sectors  respectively. 

trade  balance,  with 

In  addition, 

the 

Success  in  ICT  is  mostly  the  result  of  a  combination  of  access  to  excellent  research  and 
availability  of  risk  capital  in  early  stages,  and  strong  focus  on  markets  once  established. 
This  is  typically  the  case  in  software  packages,  where  US  suppliers  have  captured 
leadership.  In  this  area,  the  European  successes  are  limited  to  niche  applications,  in 
particular  in  sectors  where  it  has  been  possible  to  build  application  excellence  on 
experience  from  leading edge users, e.g.; in engineering  or design  packages. 

international 
In  semiconductors,  European  manufacturers  have  been  able,  through 
strategic  alliances  and  important  R&D  efforts,  notably  by  JESSI  and  the  Esprit 
programme,  to  maintain  a  competitive  position,  which  ensures  a  European  production 
base,  access  to  key  manufacturing  technologies  and  ability  to  provide  critical  supply  to 
the downstream  user  industries. 

The  electronic  assembly  sector,  both  for  consumer  electronics  and  for  computers,  is 
where  Europe, as a production  area,  shows  the  heaviest  handicap,  due  largely  to the  high 
cost  of  labour.  This  disadvantage  has  led  to  complex  combinations  of  délocalisations,  in 
Asia  and  more  recently  in  central  and  eastern  European  countries,  and  installation  of 
some manufacturing  functions  in proximity  to the destination  markets. 

In the  telecommunications  equipment  sector,  the  global  structure  of the  main  players  and 
constant  efforts  in technology  have  ensured  to  Europe  a  leading  position,  exemplified  by 
the  GSM  success.  The  importance  itself  of  the  European  telecommunications  equipment 
industry  shows the need to face  adequately  the ongoing  technological  revolution. 

3.  Main  challenges  for the European  ICT  industries 

Improve  market  take-up: European  markets  lag behind  those of  other  regions.  First,  the 
commercial  market  is  less  forward-looking;  too  many  companies  perceive  investment  in 
ICT  primarily  as  an  element  of  cost,  to  be  reduced  when  business  confidence  declines. 
The  contribution  of  ICT  towards  improving  competitiveness,  streamlining  business 
processes  and  enabling  innovation  is  underestimated  or  ignored.  Second,  the  take-up  of 
ICT by  individual  consumers  is slow.  With  some  exceptions,  notably  in Nordic  countries, 
the  number  of  Internet  users  is  comparatively  low  in  Europe  (see  Fig.  8).  Third,  public 
administrations  are  slow  to  make  innovative  use  of  ICT,  this  is  particularly  important  in 
education,  but  affects  many  other areas  where  potential  gains  in  efficiency  and  quality  of 
service are very  significant.  Finally, the uneven  pace  of telecommunications  liberalisation 
throughout  the  Union  has  probably  been  the  single  most  important  brake.  Such  structural 
delays  represent  serious  handicaps  for  the  European  ICT  industry,  both  in  the  context  of 
the  movement  towards  the  Information  Society,  and  the  development  of  industrial 
competitiveness  policies.  Suppliers  must  work  harder  to  seek  means  to  convince  the 

market  of  the  benefits  of  ICT  and  to  stimulate  accelerated  take-up.  An  open  and 
functioning  single  market  is  essential  for  the  diffusion  of  ICT  products  and  the 
development  of  related  services.  Divergent  standards  and  regulations  persist,  imposing 
obstacles  to  the  expansion  of  the  ICT  industries.  These  issues  are  dealt  with  elsewhere2, 
but they  must  be resolved  if Europe's  full  market  potential  is to be  realised. 

Transform  industrial  structures:  European  ICT  industry  has been  slow  in  restructuring 
itself  to  meet  the  new  challenges.  They  have  not  kept  pace  with  the  trend  of  outsourcing, 
developing  networks  of  competitive  component  suppliers,  cross-national 
production 
networks,  which  is  so  much  a  feature  of  the  US  and  Japanese  producers  and  their  Asian 
supply  networks  .  The  opportunities  presented  by  the  economies  of  the  central  and 
eastern  European  countries,  and  their  eventual  integration  into  the  Union,  to  enable 
restructuring  should  be  seized  by  industry  -  and  facilitated  by  public  authorities. 
Industrial  cooperation  in global  markets  is essential  in order,  not only  to participate  in  the 
creation  of  standards  and  be  present  in  the  markets,  but  also  to  ensure  access  to  key 
technologies  and components  and  to avoid  excessive  dependency. 

Develop  fast-growing  companies:  Europe  has  also  failed  to  foster  the  sort  of  dynamic 
growth  of  new  entrants  which  is  so  much  a  feature  of  the  US  industry.  The  conditions 
surrounding  SMEs  and  start-ups  must  be  improved;  their  role  is  critical  in  introducing 
new  technology,  in  supporting  competitive  improvements  in  large  enterprises  and,  most 
importantly,  in  the  creation  of  employment.  Industrial  restructuring  inevitably  means 
changes  in  employment,  which  can  be  facilitated  by  instruments  to  create  a  flexible 
educated  work-force.  If ICT  production  in  Europe  is to  remain  competitive,  industry  also 
has to commit  itself to the continuous  upgrading  of its skills. 

Enable  European  excellence  in  software:  No  amount  of  restructuring  can  change  the 
fact  that  Europe  is  a  high-cost  region  for  manufacturing.  European  manufactured 
products  must  compete  in  global  markets  on  design  and  quality,  and  in  some  cases  do  so 
very  successfully,  for  example  GSM  mobile  telephones  and  digital  satellite  TV.  The  role 
of software,  particularly  embedded  software,  in conferring  competitiveness  and  providing 
added  value,  is  so  important  as  to  merit  particular  mention.  The  traded  software  area  is 
relatively  well  understood,  including  package  software,  custom  software  and  services. 
But  this  represents  only  a  fraction  of  the  total  industrial  activity:  every  significant 
manufacturer  has  some  software  activity  in-house,  developing,  adapting,  servicing  and 
maintaining.  Indeed  for  many  businesses,  core  competence  is  expressed  in  software. 
Much  of  the  product  of  financial  services  is  software;  software  already  constitutes  a 
significant  part  of  the  value  of  modern  aircraft  and  provides  an  increased  share  of  the 
functionalities  which  make  several  industrial  products  competitive  in  the  marketplace. 
Securing  adequate  understanding  of the  contribution  of this  element  of economic  activity 
to  competitiveness,  added-value  and  employment  is  now  long  overdue.  Only  with 
adequate  understanding  of  the  structures  and  economics  of  this  industry  can  policy  be 
developed  at  company  or  government  level  to exploit  the  benefits  software  offers.  It  is all 
the 
the  more 
Information  Society  will  require  a  massive  effort  of  software  development  and  content 
production.  The  linguistic  fragmentation  of  the  European  software  market  represents  an 

the  development  of  the  myriad  applications  of 

important  because 

2COM(96)359 of 24.7.1996- Communication  from  the Commission  on "Standardisation  and the global 
information  society: The European  approach". 

'  "Wintelism  and  the  Changing  Terms  of  Global  Competition"  Professors  M.  Borrus  and  .1 Zysman, 
University of California  1997. 

additional  challenge  but also an opportunity  for  specific  European  solutions: a large part 
of  development  and  marketing  costs  depend  on  the  number  of  language  versions  of  the 
product,  while  the  size  of  language  market  addressed  first  constitutes  an  important 
competitive advantage. 

Optimise  technology  development  and diffusion:  ICT industries  need  to remain  at the 
forefront  of  technological  developments.  Not  only  are  R&D  costs  rising  as  a  result  of 
shorter product  life-cycles,  but in addition the interactive  innovation process requires that 
industry  react more  in tune with customer  requirements.  Further,  for  the  ICT industry  to 
profit  from  R&D investment,  technologies should  be diffused  as timely  and as widely as 
possible. This is not an automatic  process; it requires significant  effort  for  the take-up of 
new technologies by all classes of users: industry, services (private and public) as well as 
private citizens. 

Exploit the potential for employment growth: The diffusion  of use of ICTs will have a 
profound  impact  on  quantitative  and  qualitative  aspects  of  the  employment.  A  recent 
study  identifies  three  types of effect  of ICTs on employment:  direct  effects  on the  ICT 
and related industries; indirect effects  on other branches of the economy such as increases 
in  productivity  and  changes  in  production  structures;  and  other  effects  triggered  by  the 
increased "tradeability" of services and the resulting changes in the international  division 
of labour. The same study estimates long term effects  for  Europe over ten  years between 
a  loss of three million jobs  (negative  scenario)  and a gain  of six  million  additional jobs 
(in the positive scenario of expeditious ICT diffusion).  It is however clear that the direct 
effects  on jobs in the ICT industries  show a positive  trend.  The experience  of the USA, 
where ICT industries'  restructuring  started  earlier,  indicates that  more than  150,000 jobs 
were created between  1988 and  1995 in the Personal  Computer sector alone (for  example 
one US company, starting  up in  1985, grew to nearly  6B$ t.o. and  15,000 employees by 
1995).  The  Union  must  encourage  the  growth  of  such  companies  financed  through 
dynamic pan-European secondary capital markets. European IT companies will create the 
high quality jobs of the future. 

4. Priority areas for policy initiatives 

industry  and 

the  Member  States,  as  well  as 

Broad  consultations  with 
the 
recommendations  from  various  consultative  bodies  and  studies  show  remarkable 
consistency.  They  fall  into  two  categories.  The  first  comprises  those  recommendations, 
such  as  telecommunications  liberalisation,  which  are  already  the  subject  of  action  or 
reflection  in the Commission and National  administrations. These are summarised  here in 
order to bring attention to the importance of implementing  a range of key policies  for the 
competitiveness  of  the  industry.  A second  set  of  issues  is  identified  which  concern  the 
ICT  industries  more  specifically,  or  which  would  benefit  from 
future  priority 
examination. These are dealt with in the second part. 

IFO Institut fur  Wirkschaftsforschung.  Miinchen, 1996 

4.1. Policy initiatives under way which require urgent implementation 

The  adoption  in  November  1996  of  a  comprehensive  action  plan  for  the  Information 
Society  has  served  to  fine-tune  the  Commission's  priorities.  It  addresses  the  need  for 
rapid  progress  and  provides  a  sense  of  urgency  to  the  EU's  policy  commitment  for  an 
effective  implementation  of all aspects of the IS. The priorities are: 

•  The  effective 

implementation  by  all  member  states  before  1.1.98  of 

the 
telecommunications  markets  liberalisation  is  vital.  The  Commission  is  determined 
that  the  commitments  made  will  be  implemented  and  it  will  be monitoring  carefully 
the legislative development in the Member States. 

•  Electronic commerce is the first  practical  implementation  of the IS, the first  "massive 
application"  of  the  future.  In  the  communication  "Putting  services  to  work"6,  a 
European  initiative  on electronic  commerce  was announced.  To launch  this  initiative, 
a  framework  communication  to  the  Council  has  been  adopted  by  the  Commission 
listing the key priority areas that have to be resolved. 

•  Strengthening  and  acceptance  of internationally agreed principles  and rules covering 
competition,  intellectual  property  rights,  privacy  and  individual  rights,  information 
security, interoperability and standards. 

•  Take-up  actions  and  awareness  initiatives  need  to  be  established  or  expanded  to 

encourage European  industry and society to increase ICT usage. 

•  Satellite-based broadband communication systems: the  action  plan  submitted  by  the 
Commission addresses the regulatory adjustments  and R&D actions needed in order to 
ensure significant  European presence at international  level. 

•  In the transport sector, new applications  in trans-European networks (TENs), new air-
traffic  control  systems  and  numerous  consumer  applications  are  emerging  which  will 
offer  growing  markets  for  the  European  ICT  industry.  Action  plans  for  Intelligent 
Transport  Systems  (ITS)  and  Location  and  Navigation  systems  (GNSS)  are  being 
prepared. 

•  The Framework Programme for  R&D is especially  important  in  making  the  best  use 
across  the  EU  of  the  substantial  investment  in  R&D  which  is  required  in  order  to 
maintain  competitiveness.  The  5th  Programme  due  to  start  in  1998,  will  focus 
particularly  on  the  participation  of  users  in  R&D  activities,  essential  to  ensure  that 
actions  meet  real  needs  in  line  with  the  requirements  of  the  market.  In  parallel,  the 
support of the development of key technologies will be integrated  into one programme 
and  will  be  structured  in  four  areas:  services  for  the  citizens,  electronic  commerce, 
multimedia  content  and  key  technologies.  Responsiveness  and  flexibility  will  also  be 
enhanced. 

»  Education and  training are  critical  in  providing  employees  with  the  necessary  skills 
and flexibility  to use  new technologies.  Educational  infrastructures  must  be  upgraded 
by equipping schools and cultural  institutions with ICTs, providing them with network 

5 COM(*6)6©7 of 27.11.1996  - Communication  from  the Commission  on "Europe  at the  Forefront  of  the 
Gtotol Information Society: Rolli«<g Action  Plan". 

6  CSE(%)6  of  27  November  19%  -  "Putting  Services  to  Work",  a  Communication  to  the  European 
Council. 

access  (in  particular  Internet).  This  should  be  accompanied  by  improved  teacher 
training in ICT applications.  In cooperation  with the Member  States, the Commission 
will  stimulate  actions  at national  level  to offer  European  citizens  training  appropriate 
to  the  Information  Society.  The  action  plan  "Learning  in  the  Information  Society", 
approved  by  the  Commission  in  December  1996,  will  bring  together  the  most 
important  players  in order to provide  better access to skills needed  in the  future.  The 
implementation  of  the  action  plan  runs  in  parallel  with  the  work  undertaken  by  the 
Task  Force  "Educational  software  and  multimedia",  i.a. a joint  call  between  several 
Commission  services, thus facilitating  access to Community  support  in this area. The 
measures will be renewed next year. 

The language issue, particularly  important  in Europe for  software,  is addressed  in the 
Information  Society and Language Engineering programmes  . 

4.2. New areas requiring attention 

Action in these areas should be targeted at improving either conditions in the supply side, 
such as benchmarking  and training, or opening  up the demand  side, for  example  market 
access or take-up measures. 

Improve  global  competition:  The  positive  conclusion  of  the  Information  Technology 
Agreement (ITA) at the WTO Conference  in Singapore  in December  1996 and the WTO 
telecommunications  Agreement  in  February  this  year  are  very  important  steps  in  this 
direction.  The  abolition  of  tariffs  on  all  IT  products  by  the  year  2000  accelerates  the 
process started  in the last round of GATT negotiations.  It will contribute to reducing  the 
costs  of  producing  ICT equipment  in  Europe,  while  providing  European  manufacturers 
with better opportunities for exporting to foreign  markets. The ITA must be implemented 
immediately,  while at the same time  launching  the review  mechanism  to extend  product 
coverage.  Action  should  be  initiated  to  extend  the  country  coverage  to  those  non-
participating  WTO countries  (notably  in  South  America), while  participation  in the  ITA 
should  be  required  of  candidates  for  accession  to  the  WTO,  notably  China  and  Russia. 
With the removal of tariffs  following  the ITA, attention will shift  towards the elimination 
of  non-tariff  barriers  in  our  main  trading  partners,  notably  by  pursuing  Mutual 
Recognition  Agreements  (MRAs),  and  greater  harmonisation  of  standards  and 
conformity  assessment  procedures. The  first  priority  will  be to  build  on the work  of the 
TransAtlantic  Business  Dialogue  to  conclude  an  MRA  with  the  USA,  exploring  in 
particular  the  possibilities  of  extending  the  principle  of  manufacturers  declaration  of 
conformity.  In  parallel,  operational  activities  will  be  developed  in  the  context  of  the 
TransAtlantic  Small  Business  Initiatives  (TASBI).  These  and  other  trade  policy 
instruments  should  be  applied  in  a  coherent  manner  ensuring  that  European  industry 
operates under optimal conditions both within the Union and in global markets. 

Accelerate  ICT  take-up  and  promote  awareness:  Public  administrations  can  and 
should  do more to stimulate  the take-up of  ICT, both  within  their own  services and  with 
the public at large. In the first  place, education  authorities  must  improve the provision  of 
ICT to schools in order to pave the way to the Information  Society. Moreover,  they must 
respond  to  public  demand  for  better,  more  cost-effective  services.  And  in  the  broadest 

7  COM(96)456  of  2.10.96  -  Multi-annual  programme  on  Multilinguism  in  the  Information  Society. 
Adopted  by the Council on 8.10.1996 

context,  the  furtherance  of  National  and  Community  policies  in  many  domains  would 
benefit  by  accelerated  greater  innovative  use  of  the  means  offered  by  ICT.  For  example, 
fig.  6  demonstrates  the  relative  lack  of  investment  in  IT  in  southern  and  peripheral 
Member  States, despite  the  fact  that  IT is a powerful  tool  to promote  Cohesion  by  linking 
regions  and  reducing  barriers.  A  number  of  Member  States  are  now  in 
the  process  of 
establishing  innovative  fiscal  and  other  incentives  aimed  at  accelerating  the  take-up  of 
ICT  in  homes,  schools  and  businesses.  These  schemes  point  the  way,  and  should  be 
emulated  and  expanded  upon  broadly  throughout  the  Union. 

Create  new  markets  by  timely  standards:  The  creation  and  use  of  standards  has 
become  one  of  the  key  strategic  levers  used  by  industry  to  establish  new  markets. 
Consumer  markets,  particularly,  depend  on  establishing  purchaser  confidence 
in 
products,  hence  the  importance  of  establishing  cooperation  between  suppliers  to  support 
universal  standards.  To  participate  in  the  benefits  of  such  cooperation,  producers  must 
bring  contributions  to  the  table,  in  the  form  of  technologies,  standards  or  markets,and  be 
active  in  the  international  standards  creating  process  if  they  are  not  to  fall  behind 
technologically  and  commercially.  The  regulatory  side  of  standardisation  also  needs 
attention  to  simplify  and  accelerate  procedures  (e.g.  manufacturers  declaration  of 
conformity)  in order  not  to hinder  new  product  marketing.  Standards  in  ICT are  generally 
global  in  nature,  but  often  multiple  standards,  based  on  regional  specificities,  will 
compete  for  market  acceptance.  European  companies  should  therefore  should  not  only 
participate  in  the  standardisation  of  technical  specifications  via  international  consortia, 
but  should  also  use.  when  possible,  European  platforms.  The  European  Commission 
supports  the  creation  of  a  flexible  and  open  workshop  structure  enabling  European 
companies  to  participate  in  the  international  ICT  standardisation  process.  They  should 
trigger  internationally  recognised  standards  using  European  specificities.  This  calls  for 
the  principal  actors  on  the  main  user 
agreements  at  the  strategic 

level  between 

Q 

requirements  . To  translate  user  requirements  into  technical  specifications,  pragmatic  and 
flexible  delivery  mechanisms  need  to  be  developed  by  industry  in  close  collaboration 
with  European  standardisation  organisations.  The  European  Commission  supports  the 
creation  of  flexible  industry-led  standardisation  procedures  to  develop  -  besides  the 
adoption  of  formal  European  standards  -  technical  specifications  for  European  market 
operators.  To  ensure  consistency  and  an  optimal  use  of  the  European  standardisation 
resources,  a  "guichet  unique"  under  the  umbrella  of  the  European  standardisation 
organisations  should  be considered  as a matter  of  urgency. 

Exploit  the  potential  of  enlargement:  The  enlargement  of  European  Union  offers  the 
European  ICT  industry  an  expanded  and  growing  internal  market,  improved  economies 
of  scale,  as  well  as  new  development  locations  to  site  cost-sensitive  operations.  The 
European  ICT  industry  has  the  opportunity  here  to  re-engineer  its  manufacturing  supply 
structures,  similarly  to  those  of  US  and  Asian  producers,  and  so  sharpen  its  global 
competitiveness.  Much  of  the  industry  is  in  the  process  of setting  up various  forms  of  co 
in  these  countries,  which  offer  also  skills  availability  and  competitive 
operation 
manufacturing  conditions.  European  producers  are  relocating  activities  back  from  the  Far 
East  in  order  to 
take  advantage  of  these,  often  better,  conditions,  releasing  Far  East 
plants to concentrate  on  growing  and  increasingly  open  local  markets.  Particular  attention 
will  be  given  to  the  facilitation  of  co-operation  between  the  industries  of  the  EU  and  the 
CEEC.  This  is already  under  way  in  the  consumer  electronics  industry.  The  Commission 

8  An  example  of  such  agreements  is  the  Mol)  on  "Open  Access  to  Electronic  Commerce  for  European 
S M Es". 

supports  this  initiative,  and  its  expansion  and  extension  to  other  sectors  of  the  ICT 
industries.  Actions  proposed  by  industry  include  benchmarking  suppliers,  supplier 
conferences,  in-plant  training,  and  quality  workshops.  The  Commission  would  support 
the  establishment  or  strengthening  of  active  industry  representation  in  the  CEEC.  The 
pre-accession  strategy  provides  a  solid  framework 
to  establish  conditions  for  fair 
competition  and  to create a level  playing  field  which  will  benefit  the  European  industry. 

Promote  industrial  cooperation:  Numerous  other  important  industrial  co-operation 
initiatives  are  under  way  or  proposed,  notably  in  the  Newly  Independent  States,  in  the 
Mediterranean  area,  South  America and  Asia.  Several  export  promotion  activities  are  also 
proposed.  In  so  far  as the  ICT  industries  are concerned,  and  particularly  the  SMEs,  more 
effort  needs  to  be  made  to  raise  industry's  awareness  of  the  opportunities  offered  and  to 
help  them 
transborder 
to  prioritise  according  to  their  circumstances.  In  addition, 
industrial  co-operation  activities  could  benefit  largely  from  enhanced  co-ordination  with 
existing  Member  States'  programmes. 

Facilitate  the  emergence  of SMEs:  Small  and  medium  enterprises  (SMEs)  are  critical 
for  employment  generation  and  a  key  element  of  the  ICT  industry  (particularly  in  the 
software  and  multimedia  content  areas)  because  they  often  play  the  leading  role  in  the 
development  of  new  technologies  and  the  creation  of  innovative  products.  European 
industry  lags  far  behind  the  US  in  high-tech  IT  start-ups.  This  is  a  serious  handicap,  as 
can  be seen  from  the  fact  that many  of today's  leaders  in  ICT were  SMEs  in the  USA  less 
than  20  years  ago.  Policy  initiatives  aimed  at  creating  favourable  conditions  for  fostering 
and  financing  innovative  start-ups  is  of  the  greatest  importance.  Policy  initiatives  should 
pay  particular  attention  to  facilitating  the  provision  of  venture  capital  and  co-operation 
should  be  sought  with  financial  institutions,  in  order  to  develop  mechanisms  such  as 
technology  "rating".  Efforts  should  also  continue  to  reduce  the  administrative  burden, 
often  a  prime  source  of  discouragement.  The  environment  surrounding  in  particular 
starting  new  businesses,  should  be  considered  as  the  subject  of  a  benchmarking  analysis, 
by  comparing  the  situation  in  Europe  and  in  other  regions,  particularly  the  USA  (Silicon 
Valley).  These  problems  have  long  been  evident,  but  the  situation  remains  critical.  There 
is  urgent  need  for  the  Commission  and  Member  States  to  develop  rapid  and  effective 
action.  The  Commission  also  intends  to  use  the  G7  project  "Global  market-place  for 
SMEs"1  ,  as  the  basis  for  encouraging  the  exchange  of  experiences  at  global  level  and 
facilitating  other  forms  of  co-operation. 

Focus  on  employment:  skills,  education  and  training:  As  earlier  noted.  European  ICT 
industry  must  restructure  continually  in  order  to  remain  competitive,  upgrading  its 
products  and  processes  to  provide  increased  added  value  while  relocating  less  profitable 
the  process.  The 
cost-sensitive  operations.  Skills  upgrading  are  at 
implementation  oï  a  "skills  standards"  scheme  could  go  a  long  way  to  fulfilling  this 
objective.  Establishing  skills  profiles  related  to  the  main  activities  on  an  industry  wide 
basis  provides  a reference  for  building  a competent  workforce,  improving  performances 
training  programmes.  Such  standards  will  also  contribute  to  a  better 
and  defining 
functioning  of  labour  markets  by  providing  a  clear  basis  for  matching  employers"  needs 
and  skills  offered.  Moreover,  standards  offer  a  practical  basis  for  improved  co-operation 
between  industry  and  schools  and  colleges,  and  a  set  of  criteria  to  help  education 

the  heart  of 

9  Specific  features  of  SMEs  are  addressed  in  the  "Action  Plan  for  Innovation  in  Europe",  adopted  by  the 
Commission  on  20.1 l.P)%.  - COM(%) ?X<> 

10 Project  launched  at  the  (i7  Ministerial  Conference  in  Brussels  in  February  ! ()95 

9 

authorities  in Member  States in their efforts  to tailor  curricula to the 21st century  digital 
economy. 

Promote  benchmarking:  The  European  Commission  considers  benchmarking  to  be an 
effective  and powerful  tool  for  improving competitiveness and intends to promote its use 
by  enterprises,  in  particular  SMEs.  Because  of  its  economic  importance  and  global 
nature,  the  ICT  industry  is  among  the  first  to  be  singled  out  for  the  application  of 
benchmarking,  and  the Netherlands  Government  has had  carried  out  a benchmark  study 
of  the  industry.  The  Commission  intends  to  promote  benchmarking  at  sector  and 
framework  condition  level.  The  competitiveness  of  the  European  economy  as  a  whole 
benefits  from  improvements  in  the  ICT  industry.  Systematic  review  of  industrial 
performance,  identification  of  relative  weaknesses  and  adoption  of  corrective  measures 
contributes  to  progress.  The  Commission  will  review  its  current  information  sources  to 
they  are  adequate  for  the  purpose  of  providing  appropriate 
determine  whether 
benchmarking  indicators, and  will  revise them  if necessary.  It will  work  closely  with  the 
Member  States and  industry  to identify  critical  framework  conditions  for  industry  and to 
identify  best practises. Areas already  identified  here for consideration  include  SME start 
ups and embedded  software. 

5. Conclusion 

A  number  of  key  areas  for  action  have  been  identified  in  this  Communication.  The 
longer  their  effective  implementation  is  delayed,  the  more  difficult  it  will  be  to  hold  a 
leading  position  for  the  European  ICT  industry.  Telecommunications  liberalisation  is 
critical, but others are also necessary as described above. 

The Commission proposes to follow  up on this Communication  by working together with 
the  Member  States  and  Industry  to  draw  up  specific  actions  responding  to  these  key 
areas,  to  establish  a  work  programme  for  their  execution  by  all  concerned  parties 
(Commission, Member States, Industry), and a mechanism  for regular review of progress. 

10 

Annex 1 
The Council resolution of 18.11.1991 and its follow-up 

Since the resolution of  1991  , the launch of the 4th Framework  Programme for  R&D has 
successfully  addressed  industry  requirements  for  R&D  in  ICT.  User  and  market  needs 
have  guided  the  relevant  R&D  programmes  (Esprit,  ACTS  and  Telematics),  and  the 
technologies developed as a result are having a direct market impact. 

Best  use  of results  and  active  international  co-operation  have  been  two  key  elements  in 
programme  action.  Attention  has  been  focused  on  SMEs.  Synergies  with  the  Eureka 
programme have been strengthened. 

As  explained  in  the  resolution  of  1991, multilateralism  is  the  basis  on  which  access  to 
markets  should  be  sought.  This  approach  has  been  pursued  in  the  GATT  where 
significant  reductions  in tariffs  were obtained  in the  Uruguay  round  negotiations.  These 
were followed  by the Information  Technology  Agreement  (ITA) which  will  result  in the 
elimination  of tariffs  for most IT products by the year 2000. Of similar importance  is the 
success  achieved  by  the  conclusion  of  the  WTO  agreement  in  February  1997,  opening 
markets for telecommunication  services world-wide. 

The multilateral  approach  does not preclude bilateral  actions where  appropriate.  Contact 
has  regularly  been  made  with  the  US  and  Japan  to  protest  against  bilateral  agreements 
which discriminate against the EU (e.g. the US-Japan Semiconductor Arrangement). 

A "Centralised  Point of Information"  was established  in order to collect  information  and 
analyses concerning market access to and competitive practices in the main  industrialised 
countries.  A  report  was  issued  covering  anti-competitive  practices,  distortions  in 
procurement,  state  aids,  including  examples  of  discriminatory  practices  and  structural 
impediments. 

A  number  of  industrial  co-operation  initiatives  have  been  undertaken.  An  important 
example is the parts and components industry  supplying consumer  electronics producers, 
whose  production  practices  have  been  compared  with  those  of  similar  Japanese 
companies. This has been done in a co-operative  benchmarking  project jointly  organised 
by  the  European  and  Japanese  consumer  electronics  industries,  with  the  support  of  the 
Commission  and  MITI.  This  exercise  has produced  many  useful  suggestions,  as well  as 
helping  suppliers  and  users to understand  each  other's  requirements  better  and  resulting 
in improved  performance  and  increased  business. The programme  is now being  oriented 
to the countries of Central and Eastern Europe. 

'  Council  Resolution  of  18  November  1991  concerning  electronics,  information  and  communication 
technologies. 

2 Report presented  on  1  1  March  1994 to the Directors (ieneral of  Industry. 

// 

Figure 1: ICT industry structural trends 

YESTERDAY 

TODAY 

Services 
(information 
society) 

Markets 

Markets 

transport 
equipment 

manufacturing 
equipment 

other 

c 

r-

Figure 2 

EU employment in the ICT industries 
(thousands of employees) 

Computers 
Components 
Consumer electronics 
Telecom equipment 
Software and services 

Total 
Source: BIPE 

1980 

1990 

1994 

242 
258 
230 
493 
270 

284 
243 
181 
392 
612 

175 
224 
110 
361 
732 

1493 

1712 

1602 

II 

EU  12  ICT  Industries  as  a  %  of  the  Total  Manufacturing 
Industries  (81-90-94) 

0.0% 

Number  of 
Persons 
Employed 

Turnover 

Total 
investment 

Production 
excl.  VAT  in 
1990  prices 

GVAfc  in 
1990  prices 

Exports 

Imports 

EU  12:Comparasion  for  Main  Indicators  in  1995  (As  a  %  of 
the  Total  Manufacturing  Industry) 

Figure 3.1 

1981 

1990 

1995 

Figure 3.2 

14.0% 

> 
V) 
%  12.0% 
ç 
? 

10.0% 

I 

8.0% 

6.0% 

4.0% 

2.0% 

0.0% 

o 

11.2% 

I ICT 

I Chemicals 

[Automotive 

Number  of 
Persons 
Employed 

GVAfc  in 
1990 
prices 

Indicators 

h 

ICT Market Growth, CGAR 1996-98 

Figure 4.1 

Total ICTMarket 

Telecom Services 

Telecom  Equipment 

Services 

Software  Products 

Data Comm.  Hardware 

Office  Equipment 

Computer Hardware 

Source EITO 97 

9.50 

10% 

Western European Information and Communications  Technology 
(ICT) Market, 1996 Billion ECU** 

Figure 4.2 

1996 
Value 
148 
58 

%of 
ICT 
47.1 
Total IT 
Computer and Datacom Hardware 
18.4 
Office  Equipment 
2.5 
Software 
9.9 
Services 
11.6 
Hardware Maintenance and Support 
4.7 
52.9 
Total Telecommunications 
Telecommunication  Equipment 
9.1 
43.8 
Telecommunication  Services 
Total ICT 
100 
Note:  'Western Europe includes the 15 EU and 2 non-EU countries (Switzerland and Norway) 

31 
37 
15 
167 
29 
138 
315 

** It should be noted that all figures have been rounded to the nearest billion ECU at 

1996 constant exchange rates. Total and percentage may not add up due to rounding. 

Source: EITO 97 

Western European Information and Communications  Technology 
(ICT) Market by Product. 1996 

Figure 4.3 

Total Value = 
315 Billion 
ECU 

Office 
Equipment 
3% 

Telecoms 
Equipment 
9% 

Source: EITO 97 

HW  Maint. 
&  Support 
5% 

>f 

Worldwide  IT  Market  by  Region:  Percentage 
Breakdown  Calculated  on Market  Values. 
1995-1997.  Billion  ECU 

Figure 5.1 

1996 
Value 
154 
225 
92 
16 
57 
544 

1996 
% 
28.3 
41.4 
16.8 
2.9 
10.5 
100 
Europe includes Western and Eastern Europe 

1995 
% 
29.4 
41 
16.9 
2.7 
10 
100 

Europe* 
US 
Japan 
4 Tigers* 
RoW** 
Total 
Note: 

1997 
% 
27.5 
41.8 
16.6 

11.1 
100 

* 4 Tigers = Hong Kong, South Korea, Singapore, Taiwan 

*" Row = Rest of World 

Source: EITO 97 

Worldwide  IT  Market  by  Region.  1996 

Figure 5.2 

Total Value = 
544 Billion 
ECU 

Rest  of 
World  17% 

4  Tigers 
3% 

/6 

IT/GDP  and  IT  per  Capita  in W e s t e rn  Europe,  the  US  and  J a p a n.  1995 

Figure 6 

3.67 

IT per Capita ECU 

WEmmEEEmam  672 

88 

217 

50 

131 

214 

763 

942 

630 

I 648 

521 

698 

426 

453 

396 

370 

•  417 
IB 460 

200 

400 

600 

800 

1000 

Figure 7 

Source: EITO 97 

EU  1 2:  Trade  Balance  for  the  ICT,  Chemical  and  Automotive 

Industries 

D 
O 
UJ 
o 
i 

Automotive 

ICT Ind. 

Cons. Elect. 

Telecom. Equip. 

Off.Mach/Comp. 

Chemical 

D1995 
• 1990 
• 1985 
• 1980 

-30000 

-20000 

-10000 

0 

10000 

20000 

30000 

Sectors 

/?• 

Penetration of Internet Hosts per 1.000  People, July 1996 

Figure 8 

S N M:  EITO 97/fMworkVMurës, http://www.nw.com and AMriiWy* 

I  2  t  I  |  I 
o 
p 

I? 

ISSN 0254-1475 

COM(97) 152  final 

DOCUMENTS 

EN 

15  16  08 

Catalogue  number  :  CB-CO-97-157-EN-C 

ISBN  92-78-18704-6 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

/n